Beyond IQ and EQ: Cultural Quotient (CQ) is the new Competitive Advantage

IQ and EQ have been overrated in recent years. The discussions have been framed in some circles and discourses as an either-or case for winning. This dangerous simplification of the real world has resulted in failures and disappointments in sciences, innovation, and notably in mergers and acquisitions (M&A). Indeed, over 20% of firms considering M&As for the value of innovation said the target company culture as complementary to their own — is the key factor in their decisions, according to the Economist Intelligence Unit (EIU). However, awry. For example, Amazon’s much-hyped acquisition of Whole Foods turned out to be a classic culture clash. Beyond M&As, research shows that culturally attuned leaders, international salespeople, and negotiators with a high cultural quotient (CQ) perform better than those with a lower CQ.

Today, diversity and inclusion are all the rage across the boardrooms worldwide. However, its poor track record suggests that something subtle but crucial may be missing in the business lexicon of CEOs in charge of firms with footprints in all regions—and wanting to serve more customers. Our experience advising some of the world’s largest organizations suggests that succeeding in strategic diversity means bridging the fault lines – the deficit of cultural quotient inside many organizations—from the top to the client-facing employees.

Similarly, globalization is not abating concerning mobility, economics, and connectivity. As a result, working together with people from different backgrounds and cultures is increasingly becoming an imperative of the new borderless world.
Globalization entails doing business in various countries, languages, and regions with cultures very different from the culture of the multinational’s headquarters. Thus, global firms armed with people powered by a cultural quotient will have an unparalleled competitive advantage in their quest for globalization. Because of the various business cultures sprawling around the world demanding or favoring unique business practices regarding teamwork, being direct or indirect regarding how you communicate in business settings.

In other words, beliefs, values, assumptions, and norms of behaviors in business across the globe are far apart. And the gap may never be bridged. The economist and former Harvard Professor Pankaj Ghemawat called this in his CAGE Distance Framework cultural distance (distance in ethnicities, languages, trust, religions), which must be understood in greater detail to enable organizations to win. Similarly, businesses wanting to succeed across the globe need to discern the subtle differences regarding how people are rewarded, tolerated (failures and mistakes), and punished. Also, how in their human capital management do they make promotions compared with their national origins? Also, organizations need to discern the subtle and clear differences in business meetings and etiquette to avoid dangerous pitfalls down the road.

Getting the cultural quotient right requires learning and training, which, like other talent development imperatives, can be provided by global firms that want to maintain better relationships across the world—while avoiding embarrassment in their business development, contract negotiations, business alliances, open innovation projects, global expansion, and above all, when closing deals. The Japanese retail giant Uniqlo learned it the hard way decades ago in its foray into the UK. After a disappointing market entry, the firm had to pull out and return to the drawing board.
Make no mistake: winning in our increasingly interconnected world requires not just intellectual quotient (IQ) and emotional quotient (EQ) but also the badly needed cultural quotient (CQ).

Again, winning the global expansion or globalization battle entails addressing the talent and cultural quotient aspects for an effective global strategy. Thus, we believe that businesses—particularly global firms need to get their houses together and start building the cultural quotient within—the sooner, the better because this hidden talent will be the new competitive advantage in decades to come.